images of those children shared with you so you can figure out if you have information in your data bases about what law enforcement is looking at? >> that's a great question. well, we get our images from a number of sources. the principal one is our cyber tip line which again, we've received over 2.6 million reports. many of them do contain images of yet to be identified children. we pop late our databases with those images. and through the support of some of the technology companies, like google and facebook and microsoft, they help us with what we call tools. visual aids that we can go through these reams of images. there are millions. number. what are their common links? where have we seen that before? because many crimes, these images are part of a series. and some of the series may be innocuous, benign images.

but we have to match that up with that scene of that same child. and we're able to do that. but we're actually working now, the problem is this. is we cannot be a state actor. if we are a state actor, then we harm law enforcement's prosecution of these cases which we make referrals to. so we don't accept images from law enforcement. we push out to law enforcement. having said that, we have a fairly robust and comprehensive inventory, a library so to speak. because we're being fed by the largest e.s.p.'s. >> that's my concern about this. is that you do have this huge database of images and yet it seems that law enforcement and cases would benefit and their investigations would benefit if

they were required to push the image to you, you might be able to make the match. >> well, they have access to ours. they have access, and we coordinate through interpol. so there are common databases that have access points. but again, we have to segregate what we receive from law enforcement to ensure it's not tenanted for potential fourth amendment challenges when these cases are prosecuted. >> ok. i'd like to talk to you about that a bit further, offline, as to how we can help resolve some of this. >> absolutely. >> because i think that your center and all of these task forces, maybe we should talk about how they can work in even closer cooperation. and i know because i work on emergency preparedness issues, that there are platforms where red cross and where fema and others monitor twitter feeds and facebook.

are you in a position, either working with google, facebook, where you are monitoring twitter feeds and facebook, maybe in geographic areas to try to find out what's going on in some communities? >> we don't monitor. but we do have links. and both through the -- all of the companies you mentioned they actually partner with us, provide access to their software applications. and more importantly, their audiences in the case of google and facebook. so we have an active dialogue through all of those social media applications. we don't monitor them per se. we encourage an active engagement, though. >> are you familiar, though, with what i'm talking about that fema and red cross actually monitor for maybe public health outbreaks? or after emergencies, cries for help and so forth? >> sure. we actually partner with fema.

congress has designated the national center as the national relocation center when children go missing in a mass disaster. and so we work closely and establishing protocols with fema and the red cross. in the event of a potential crisis. so we kind of piggyback on their resources and programs. and they bring us in when they see the need. >> thanks so much for your incredible help. and interest in learning if there are any legal impediments that you have to work even closer with law enforcement. >> thank you. >> the gentlelady's time has expired. the gentleman from kentucky is not on the subcommittee. but without objection, i would like to recognize him for a line of questioning if you like. regarding this matter. mr. guthrie. >> thank you, mr. chairman. i appreciate it very much for allowing me to do so. i'm on this side. >> somebody comes in -- >> i apologize. i'm not on the subcommittee. and i think they just had a new member come in so i apologize

for that. but on the -- before i get into what i was going to ask, on the question of not requiring to report, there's only two states required to report. that's reporting to law enforcement, right? they have to report -- if they have somebody in their -- leave their foster care they report it to social services or somebody, i'm sure, right? and reporting -- >> that's the case. it varies by state. but i'm referring specifically to reporting to law enforcement. >> ok. that's what i was -- and i did the authorization last year. and, you know, it shows that when we find common ground in the house and the senate, we can work together, senator leahy and i were the primary sponsors of your re-authorization. and so i came to tour the center. and i recommended to all my colleagues to do that. and the techniques you have to to do to find who the challenge is and who the person is, creating the image, and who we want to find is interesting how you do that. and it's something we need to know. and it's certainly a skill and an ability and something and

needed. and something that people can't get their minds around and happens. the issue with me, i'm from bowling green, kentucky. this always happens in the big city, you think. and so when we're home on our -- working in august, i'm trying to highlight the fact that this does happen anywhere. anywhere that has a computer and not just somebody on the street or so forth. so we'll try to do roundtables and conferences and what kind of things do you think just advice for us? we should -- let -- make sure people know what's going on in their communities. you say everywhere and what's happening. what kind of things don't people don't know in general that they need to know about what's probably happening in their community? >> one of the most prevalent venues where these minors are being trasked are in local hotels. now, typically, you know, people aren't paying attention who's coming and going in these hotels. but those are in the business of operating hotels.

they are in a position to take notice of the behavioral characteristics consistent with this traffic. for instance, many times a pimp will come in with three, sometimes five young girls. the girls will be off to the corner. the pimp will go in and make the arrangements for three to five rooms. and might be for a three-day period. typically cash. these girls will go up to the rooms. and they'll never leave their rooms. food will be delivered. nobody sees them again until they leave. that's strange. what's going on? why is that pimp hanging around? why is he walking the hallways? you know? 24-7? something's going on that is inconsistent with the regular routine of the trade of that hotel. and i'm -- i'm not just talking about the very small seedy hotel. i'm talking about very well-known, you know, reputable

brands. >> chain hotels. exit 22, i-65 it's right there. and every chain that you know has -- it's there. >> and what i invite people to do and i say this with some degree of reluctance, but if you want to see the scope of the problem in your own neighborhood, go to a back page. because they promote ads in communities. in towns. and not just cities. but they break it down into counties and to boroughs and communities. so if they're advertising your area, in an adult escort service, that means you have a problem. a child, if not multiple children are being exploited in that area. >> and reaching out to you, ms. brooks is -- those ideas what you think we should present. so -- i didn't think about

inviting hotel owners to come to a roundtable. but that sounds like -- or -- >> these young girls, there are some boys. about the mostly it's young girls they're being trasked from state to state. so how are they getting to and from? many times they're flying. but then they're getting into cabs. we've had many reports, law enforcement gets report. they see the same young girls over the course of a month, two months. come through their area. go to the same hotels. go back at some point to the same -- there are a lot of eyes and ears in different sectors who if they're properly educated, alerted, who can they call? typically it's going to be law enforcement. they can get to the bottom of this. and do -- and incredibly good work. >> thank you. i yield. thank you for the time, mr. chairman. >> the gentleman's time has expired. we'll now recognize the gentleman from -- mr. -- for

five minutes. >> thank you very much, mr. chairman. and welcome, mr. ryan. well, looking at this map of egistered sex offenders, and in the northern -- throughout the country, we see -- we're grateful that we're included in the map. usually we're excluded. but i welcome you. and tell you a little story also about our island and our -- the district i come from. one morning in may of 2011, the tragedy of two missing sisters actually that fell hard upon our community. melnaa was 9 years old and soloma was 8 were last seen at their bus stops as they were on their way to school. law enforcement authorities were informed, were notified

that the young girls were missing only after the sisters failed to return home from school that afternoon. o a gap of time that was lost. thank your organization for working with our tosses to ensure that we were included in this we rmation, this map that have before us and three years since the gerls have not been found. there have been leads according to law enforcement officials but the girls remain missing and there has been no arrest. and we have not forgotten the tire northern marianas community has not forgotten about melana and soloma and continue to pray for their safe return. and i hope your organization can still find them alive and unhurt.

under the re-authorization law, the 2013 re-authorization law, your organization is required to include local educational agencies, information, services, program and resources for missing and exploited children. if we could be of any assistance to your organization, and connecting you to our school officials, we would be -- more than happy to do that. but i need to ask, if you could tell me if you have reached out to our public school system, and if you did, what can you share with me as resulted from your coordination with them? >> congressman, i have to look into that. o see if there's been direct contact. i know that our case managers on the case that you referenced, for instance, would be in touch with the law enforcement investigators. because one of the things we do

and are doing, in cases like that, we -- two things. to keep that case alive. the efforts of law enforcement. we do an age progression. which we do every year. and we release that and update that to law enforcement and all our poster distribution partners. that should be going on. within your respective district. and the other thing we do is a comprehensive -- what we call actually an anniversary campaign. every two years we'll disemanate stories about -- in this case those two young girls who went missing. again, to try to generate a lead and a tip to come in. because, you know, as people's memories fade, if you keep the story in front of them, they may -- may remember that one crucial piece of evidence.

they may not have thought important a year or two ago. but now in context, they'll call. >> right. >> so we are doing that. i can tell you that. >> the reason i'm offering to help you, your organization, hook up and with our public schools is from just the information that we've been able to receive from those law enforcement authorities, the time since the girls were last seen at the bus stop. and the time that law enforcement authorities were notified, those were according to some people very important, very critical time that has -- that would have been very useful in -- probably solving the crime. and unfortunately, the authorities were not notified until the girls didn't come home from school. i am -- i understand that the authorities were not informed when the girls did not report to school. and i know that some of our

school officials have changed the system and we need your cooperation, sir. and i would be willing to connect you with our -- if you have not made any coordination -- >> we will definitely follow up. >> we need your assistance and getting our school officials up to date on what are the basic things or what are the important things they need to do to keep their children safe. and so we don't repeat this whole thing again. my time is up, mr. chairman. i appreciate it. >> the gentleman's time has expired. he would note for the error the gentleman is from the northern marianas islands. postal two letter abbreviation caused confusion in introducing him. the chair recognizes himself for five minutes. mr. ryan, thank you again. my blood boils at the beginning when you gave that brief example of now a child could be delivered to a hotel room. as easily as ordering a pizza.

as a father of a 6-year-old and 4-year-old, if i saw that gentleman, i don't know if i could contain myself. probably be in jail right alongside of him. for bad if not worse. you came from the internet business. if i looked at your bio, you worked for a.o.l. and nothing to do with a.o.l. but trying to establish a record here. something along the way, your career led you to this position jerry r working on the sandusky or the aftermath of it. you said the world is a different place and transitioned to the internet. did the internet cause this? did the internet enable this? is this world a different place because of the deterioration of society generally or were these

people struggling for my christianity here or these people, have these people always been here? with us in our society? i'm not asking -- you're not a psychologist or -- i want your personal opinion. >> i think the internet clearly has opened up opportunities at did not exist, that facilitates the commission of these traditional crimes. they were always predators. the modus oprandi has changed online. because when you think about it, now the internet provides a global platform. it provides the ability for predator to so-called groom a potential victim. because through all the information that is imparted on different social media sites, a predator will glean that information and then turn that around and target an

individual. they'll know the name, the school they go to. their activities. their friends. so when they start the dialogue, with potential victim, that victim feels oh, this is a peer. they know me. they're just like me. their guard is down. that's what the internet has encouraged and enhanced. and it's made the apprehension of these predators more difficult for law enforcement. because, you know, they can operate under the radar so to speak. so it has caused -- i use the term explosion. of these offenses. because these predators have additional tools. they have the ability to stay undetected. and they have much more opportunity to target a larger pool of potential victims. >> regarding the internet, do you have any solutions for --

for companies and anything they haven't mentioned yet? >> sure. >> short of censoring or anything else? that you want to get on record? >> absolutely. at a.o.l., we employed what we filters.ntal you enable parents to restrict the level of access that children have on the internet. and it requires a partnership. >> what about those kids that don't have parents effectively? the ones that might be going to the social worker that was brought up in earlier questioning and that sort of thing? >> it enhances the problem. but, you know, whoever is entrusted with the care and guardianship of that child, be it a social worker or even a teacher during that school day, they have to be that responsible person who if they're providing access to the

internet, which all schools do now, they have to take on the added responsibility to know where they're allowing that child to navigate. and what tools and filters are in place. >> thank you. the time i have left, you mentioned several times the committee being well situated, to help develop a partnership. more detail on you what mean by that? i just as soon you develop the part they areships. don't wait on this committee or congress. go forth and do this work. >> well, for instance, we've had the ability in this past year alone, since we engaged and got more familiar, you know, educating this committee about our work and frankly, we've learned more about your mission and charter, which has been extremely helpful. we've worked with the staff members in terms of their work to try to help identify legislative measures that could address some of the challenges that are emerging. just prior to this conference.

this testimony i was enganddle with the very excellent dialogue with the staff member. just talking about what we're seeing. what are some of your challenges? and where that intersection may be. what fixes you're thinking about? and what is our take? the dialogue. i found that a dialogue by interested stakeholders is more likely to end up with a mutual solution that if you don't have that dialogue, you're flying blind. >> ok. thank you, my time has expired. i'll now recognize the ranking member for any closing remarks. >> thank you, mr. chair. i just appreciate the fact that we've had you here today, mr. ryan. i've learned quite a lot. i too would like to just associate myself with the remarks of our chair about how enraged i think we all are when we hear some of the things that we've heard today. i think that leads us to go

forth and make sure we can do everything we can to cooperate with you and minimize these issues that are out there if not eliminate them entirely. and i do agree, too, that the role of the internet, no doubt, has been really important in magnifying the problem, multiplying the problem perhaps in many instances, too. so thank you for being here today and i thank the chair for having this hearing. thank you. >> thank you, sir. >> mr. ryan, thank you for being here and we appreciate your leadership and your commitment to this country and our kids. we join you in that effort. and we look forward to continuing our relationship in that dialogue you spoke of. and doing everything we can so that families can build better lives for themselves. with that, seeing no further business before the subcommittee, the subcommittee tands adjourned. >> in a few moments federal reserve chairman janlt yellen

on the committee. and in two hours an extension. highway trust fund to pay for road and transit projects. here's what's ahead live tomorrow. on our companion network c-span3. the house rules committee will consider legislation that would grant authority to begin a lawsuit against president obama for what republican leaders describe as "actions by the president inconsistent with his duties under the constitution." that's at 10:00 a.m. eastern. at 1:30 p.m., the senate aging committee focuses on telephone scams targeting the elderly that according to the federal trade commission cost more than $73 million a year. witnesses include representatives of the f.t.c., and the f.b.i. >> now you can keep in touch with current events from the nation's capital using any phone any time with c-span radio on audio now. ll 202-626-8888, to hear

congressional coverage and public affairs forums and today's "washington journal" program and listen to a recap of the day's events at 5:00 p.m. eastern on washington today and hear you'd audio of the sunday public affairs programs beginning sunday at noon eastern. c-span radio on audio now. call 202-626-8888. long distance or phone charges may apply. >> the head of the federal reserve says the recovery is not complete. and the economy still needs help from the fed. janet yellen told members of the senate banking committee that financial markets are reasonably healthy and that the fed would continue its economic stimulus efforts. this is two hours.

>> i call this hearing to order. this morning, we welcome chair yellen back to the committee for testimony on the fed reserve semiannual monetary policy report to the congress. since chair yellen was last before the committee, bernard hall was confirmed by the senate to serve on the board. it is important that the fed maintain a full complement of governors to effectively carry out his monetary policy and regulatory functions. to that end, there are two remaining spots to be filled on the board and i hope for swift nomination of well-qualified candidates with expertise in community banking as well as tough and effective oversight

experience. the fed continues to grapple with many present issues that span both monetary and regulatory policy, and look forward to hearing chair yellen's perspective on these issues today. the steady path to economic recovery following the great recession took a sidestep with fourth quarter gdp falling. the unemployment rate has continued to drop in recent months, but long-term unemployment and youth unemployment remain unacceptably high, and the housing sector has been slow to rebound from its troubles during the crisis with too many credit-worthy borrowers locked out of the mortgage market. given these headwinds against a more robust recovery and low

inflation rate, i am encouraged by the fomc's view that monetary policy will likely remain accommodative for a considerable time following the completion of the fed's assets purchase program. i'm also encouraged by the continued progress being made to implement wall street reform and improve u.s. financial stability. chair yellen, your recent comments outlining the importance of macro financial tools that lean against financial excesses and focus on building resilience in the financial system -- to the need to ensure that firms, particularly the largest and most systemically important firms, are prepared for the worst and able to withstand

shocks from a variety of sources. to that end, it is imperative that the wall street reform rules be completed as soon as possible. we must not forget how costly the last financial crisis has been so regulators and congress must continue to do all we can to keep our financial system stable and promote strong economic growth. with that, i will now turn to ranking member crapo for his opening statement. >> thank you, mr. chairman. welcome, chair yellen. during chair yellen's nomination hearing, i noted the need to fill the additional vacancies that the chairman referenced at the federal reserve board with individuals bringing balanced viewpoints. again, i say that the president should nominate someone with community bank experience to the board to fill one of the remaining vacancies. community banks play an

important role in their local economies and face a disproportionate burden from regulation. we should ensure that the perspective of those banks is represented in regulatory policy making. today's hearing is another important opportunity to discuss monetary policy and financial regulatory policy. since our last hearing with chair yellen, the fed has continued to reduce the pace of its large scale asset purchases known as quantitative easing or qp. it has been a welcome development to see that under the chair's direction. this process of tapering has begun and now we will likely be able to see all qp purchases cease later this year. i have consistently made my opposition to the policy of qe very clear. the quadrupling of the size of the fed's balance sheet that has occurred as a result of the fed's qe purchases of treasury and mortgage-backed securities is worrysome. these qe assets will remain on the fed's balance sheet for a very long time and the reserves

used to purchase them will remain in the financial system. the process of normalizing monetary policy will be difficult, particularly in light of the fact that our economy has failed to strengthen in the way that was promised by the supporters of this unconventional monetary stimulus. recent federal open market committee minutes indicate that in the coming years, any miscommunication about monetary policy during this normalization period could create risks to the economic outlook. continued clear communication will be important, particularly as the fed is seeking to rely on new tools that are unfamiliar to the market. for example, fed officials have indicated that overnight reverse purchase agreements, also known as repos, will likely play a large part in setting monetary policy during normalization. while the federal funds rate becomes less important. at the fomc meeting, some raised concerns that the fed's overnight repo facility could increase problems during adverse market conditions, potentially

causing counter parties to shift funds away from making loans and opting for the fed's safety net instead. how will the fed balance the need for open communication with the ability to preserve flexibility should unintended consequences arise in this important market? i'm also interested in your recent comments on the use of macro prudential tools by the fed. you specifically recognize that experience with these tools is limited, and that many central banks will still have much to learn to use these measures effectively. introducing the concept of managing u.s. monetary policy by regulations and prudential oversight is untested, and perhaps more theoretical than real. i agree with those who are concerned that regulators may not be able to get the timing right. many economists including those at the fed have not been very good judges of identifying market bubbles and predicting when the bubbles will burst. your speech discussed the ability of regulators to change

regulatory standards on mortgage lending such as debt to income and loan to value ratios. as a macro prudential tool that could slow mortgage lending. i'm very skeptical that during a housing boom, regulators would ever act aggressively to restrict lending to individuals with high levels of debt or low incomes. in fact, recent experience suggests all the political pressures run counter to that happening. it's also highly questionable to think that forecasters will identify beforehand when these tools should be adjusted during the credit cycle. while financial stability can complement the goals of monetary policy, it's paramount that the regulators strike the right balance without un-duly harming the economy. we have a lot of issues to deal with and i look forward to your testimony today, chair yellen. thank you. >> thank you, senator crapo. to reserve time for questions, opening statements will be limited to the chair and ranking

member. i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i would now like to welcome chair janet yellen back to the committee. dr. yellen is serving her first term as chair of the board of governors of the federal reserve system. prior to holding this position, dr. yellen served as vice-chair of the board for over 30 years. she has also previously served as chair of the council of economic advisors and president and ceo of the federal reserve bank of san francisco. chair yellen, it's good to see you once again. please begin your testimony. >> thank you. chairman johnson, ranking member crapo, and members of the committee, i'm pleased to present the federal reserve's

semiannual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. i will conclude with a few words about financial stability. the economy is continuing to make progress toward the federal reserve's objectives of maximum employment and price stability. in the labor market, gains in total non-farm payroll employment averaged about 230,000 per month over the first half of this year. a somewhat stronger pace than in 2013, and enough to bring the total increase in jobs during the economic recovery thus far to more than nine million. the unemployment rate has fallen nearly one and a half percentage points over the past year and

stood at 6.1% in june, down about four percentage points from its peak. broader measures of labor utilization have also registered notable improvements over the past year. real gross domestic product is estimated to have declined sharply in the first quarter. the decline appears to have resulted mostly from transitory factors and a number of recent indicators of production and spending suggests the growth rebounded in the second quarter. but this bears close watching. the housing sector, however, has shown little recent progress. while the sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates, and readings

this year have overall continued to be disappointing. although the economy continues to improve, the recovery is not yet complete. even with the recent declines, the unemployment rate remains above the federal open market committee participants' estimates of its longer run normal level. labor force participation appears weaker than one would expect based on the aging of the population and the level of unemployment. these and other indications that significant slack remains in labor markets are corroborated by the continued slow pace of growth in most measures of our early compensation. inflation has moved up in recent months, but remains below the fomc's 2% objective for inflation in the longer run.

the personal consumption expenditures or pce price index increased 1.8% over the 12 months through may. pressures on food and energy prices account for some of the increase in pce price inflation. core inflation, which excludes food and energy prices, rose 1.5%. most committee participants project that both total and core inflation will be between 1.5% and 1.75% for this year as a whole. although the decline in gdp in the first quarter led to some downgrading of our growth projections for this year, and and other fomc participants continue to anticipate that economic activity will expand at a moderate pace over the next several years, supported by

accommodative monetary policy, a winning drag from fiscal policy, the lagged effects of higher home prices and equity values, and strengthening foreign growth. the committee sees the projected pace of economic growth as sufficient to support ongoing improvement in the labor market with further job gains, and the unemployment rate is anticipated to continue to decline toward its longer run sustainable level. consistent with the anticipated further recovery in the labor market and given that longer term inflation expectations appear to be well anchored, we expect inflation to move back toward our 2% objective over coming years. as always, considerable uncertainty surrounds our

projections for economic growth, unemployment and inflation. fomc participants currently judge these risks to be nearly balanced, but to warrant monitoring in the months ahead. i will now turn to monetary policy. the fomc is committed to policies that will promote maximum employment and price stability consistent with our dual mandate from the congress. given the economic situation that i just described, we judge that a high degree of monetary policy accommodation remains appropriate. consistent with that assessment, we have maintained the target range for the federal funds rate at 0% to .25% and have continued to rely on large scale asset purchases and forward guidance about the path of the federal funds rate to provide the

appropriate level of support for the economy. in light of the cumulative progress toward maximum employment that has occurred since the inception of the federal reserve's asset purchase program in september 2012, and the fomc's assessment that labor market conditions would continue to improve, the committee has made measured reductions in the monthly pace of our asset purchases at each of our regular meetings this year. if incoming data continued to support our expectation of ongoing improvement in labor market conditions and inflation moving back toward 2%, the committee likely will make further measured reductions in the pace of asset purchases at upcoming meetings with purchases concluding after the october meeting. even after the committee ends

these purchases, the federal reserve's sizeable holdings of longer term securities will help maintain accommodative financial conditions. thus supporting further progress in returning employment and inflation to mandate consistent levels. the committee is also fostering accommodative financial conditions through forward guidance that provides greater clarity about our policy outlook and expectations for the future path of the federal funds rate. since march, our post-meeting statements have included a description of the framework that is guiding our monetary policy decisions. specifically, our decisions are and will be based on an assessment of the progress, both realized and expected, toward our objectives of maximum

employment and 2% inflation. our evaluation will not hinge on one or two factors, but rather, will take into account a wide range of information, including measures of labor market conditions, indicators of inflation and long-term inflation expectations, and readings on financial developments. based on its assessment of these factors, in june, the committee reiterated its expectation that the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset purchase program ends, especially if projected inflation continues to run below the committee's 2% longer run goal, and provided that inflation expectations remain well anchored. in addition, we currently anticipate that even after

employment and inflation are near mandate consistent levels, economic conditions may for some time warrant keeping the federal funds rate below levels that the committee views as normal in the longer run. of course, the outlook for the economy and financial markets is never certain, and now is no exception. therefore, the committee's decisions about the path of the federal funds rate remain dependent on our assessment of incoming information and the implications for the economic outlook. if the labor market continues to improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than

currently envisioned. conversely, if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated. the committee remains confident that it has the tools it needs to raise short term interest rates when the time is right and to achieve the desired level of short term interest rates thereafter, even with the federal reserve's elevated balance sheet. at our meetings this spring, we have been constructively working through the many issues associated with eventual normalization of the stance and conduct of monetary policy. these ongoing discussions are a matter of prudent planning and do not imply any imminent change in the stance of monetary policy. the committee will continue its discussions in upcoming meetings and we expect to provide

additional information later this year. the committee recognizes that low interest rates may provide incentives for some investors to reach for yield. and those actions could increase vulnerabilities in the financial system to adverse events. while prices of real estate, equities and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. in some sectors, such as lower rated corporate debt, valuations appear stretched and issuance has been brisk. accordingly, we are closely monitoring developments in the leverage loan market and are working to enhance the effectiveness of our supervisory guidance. more broadly, the financial

sector has continued to become more resilient as banks have continued to boost their capital and liquidity positions, and growth in wholesale short term funding in financial markets has been modest. in sum, since the february monetary policy report, further important progress has been made in restoring the economy to health and in strengthening the financial system, yet too many americans remain unemployed, inflation remains below our longer run objective and not all of the necessary financial reform initiatives have been completed. the federal reserve remains committed to employing all its resources and tools to achieve its macro economic objectives and to foster a stronger and more resilient financial system. thank you. i would be pleased to take your questions.

>> thank you for your testimony. as we begin questions, will the clerk please put five minutes on the clock for each member. chair yellen, there seems to be mixed signals about the economy and the fact -- the face of these mixed signals, how cautiously will the fed proceed as it considers any large scale asset purchases? >> chairman johnson, as you note, there are mixed signals concerning the economy. most importantly, gdp growth is reported by the bureau of economic analysis to have declined almost 3% at an annual rate in the first quarter.

that said, many indicators concerning the economy, indicators of spending and production, are substantially more positive than that. as i noted, the labor market throughout that period has also continued to improve and at a somewhat faster rate than we had seen previously. indicators of consumer sentiment and of business sentiment and optimism also seem to be positive, so my reading at the present time is that the gdp decline is largely due to factors i would judge to be transitory and i do think that it's substantially that negative number substantially understates the momentum in the economy, but of course, this is something we

need to watch very carefully and are doing so. nevertheless, my overall view is more positive. now, as i mentioned, the labor market i believe has been improving. not only is the unemployment rate been declining, but broader measures of performance of the labor market have also shown improvement, and that's important. this is of course exactly what we want to achieve. but the federal reserve does need to be quite cautious with respect to monetary policy. we have in the past seen sort of false dawns, periods in which we thought growth would speed, pick up, and the labor market would improve more quickly, and later events have proven those hopes to be unfortunately overoptimistic so we are watching very carefully,

especially when short term overnight rates are at zero so we have no ability to lower them further. we need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates, and i think the forward guidance that we have provided and the policies that we have put in place are providing a great deal of accommodation to the economy to make sure that it is on a sound trajectory. >> referring to the collins amendment, the senate recently passed legislation to clarify the fed's ability to apply an insurance-specific capital standards to insurance companies that it oversees. why is it important that congress act quickly and pass this legislation?

>> well, as my colleagues and i have made clear on many occasions, our objective in designing regulations for insurance companies that come under our supervision or other non-bank sifis will be tailored to suit the needs and special characteristics of the entities that we supervise, and we are certainly trying to achieve that in the case of the insurance entities that we supervise. but there are constraints on our ability to take, tailor appropriate regulations and the collins constraint, the collins amendment does pose constraints, so i think it would be useful to increase flexibility to allow us greater latitude in tailoring appropriate regulations.

>> in light of your recent speech -- how you envision the fed using macro prudential tools instead of monetary policy to maintain financial stability and build resilience in the financial system? >> well, i think most importantly, we have substantially strengthened the capital and liquidity positions of banking firms and financial firms that we supervise more generally. our objective is to make sure that these firms are on solid footing and to the extent that the financial system or the economy are buffeted with shocks, that these firms will be resilient, that they can continue to lend to support the credit needs of our economy,

even under adverse circumstances, and i would say our stress tests are a very important part of that as well. so first and foremost, the entire agenda from dodd-frank and more broadly coming out of the financial crisis to see a more resilient, better capitalized financial system, banking system, i'd say is the core of that effort. so if there were an asset price bubble and we did not intervene effectively to deal with that, and that bubble burst, we want to make sure that the financial system can withstand such a shock, and that is an objective of our efforts. we can also use more targeted tools that try to make sure that as business cycle conditions improve as we go into more

robust boom times, that for example, in our stress tests, we have automatically designed the scenarios to impose a more severe stress that firms need to be able to survive as asset prices increase and the economy grows more robust. so those are the kinds of tools i largely have in mind. >> senator crapo? >> thank you, mr. chairman. chair yellen, in your testimony you mentioned that you currently anticipate that the federal funds rate will continue below levels that the committee views as normal for an extended period of time. you also added that depending on economic outlook, this rate increase could occur sooner or later as we get a better feeling for the strength of the economy. based on your view of the economy and the markets, when do you currently anticipate this first rate hike to occur? >> well, the committee has given

guidance that says what we will be looking at is the progress we're making toward our two congressionally mandated objectives, maximum employment and price stability or our 2% inflation goal. so there's no formula and there's no mechanical answer that i can give you about when the first rate increase will occur. it will depend on the progress of the economy and how we assess it based on a variety of indicators. to get a sense of the views that members of our committee hold included in the monetary policy report is a summary of economic projections that all participants in the fomc provided at the beginning of our june meeting. so these projections are just

that, they depend on each participant's own personal economic outlook and they are not a policy statement of the fomc, but they provide some sense of concretely what participants expected at the beginning of that meeting, and those projections show that almost all participants anticipate that the first increase in the federal funds rate, if things continue on the trajectories they expect, would come sometime in 2015, and the median projection for where the federal funds rate would stand at the end of that year was around 1%. so a positive but relatively low level. and i think that gives you a feeling for what participants thought would be appropriate given their projections in june. i want to emphasize, as i've

said repeatedly, that what actually happens, our projections change with incoming data. the economy is uncertain and what will actually happen clearly is going to depend on the progress the economy makes. but i think that's consistent with the forward guidance that's contained in the fomc statement as well. >> thank you. based on the minutes of the most recent fomc meetings, the discussion of monetary policy normalization has become an important topic for the committee. one of the strategies that is discussed is that the fed will drain reserves by lending its securities out to the market as a part of reverse purchase agreements or repos. there is concern that such a facility would be a safe haven in times of market stress, attracting large funds, and depriving business of credit. is this a concern of yours, and

how would the fed address the potential that the facility could aggravate a market crisis? >> well, let me say that these are matters that we are discussing in an ongoing basis and no final decisions have been made about the precise strategy that we will use when the time comes to normalize monetary policy. but we have tried to provide in the minutes a very good summary of the thinking in the committee as these discussions have taken place. one of the challenges we face is, as you mentioned in your opening remarks, the fed's balance sheet is very large. there are a very large quantity of reserves in the banking system and because of that, that poses some limits on our ability to precisely control the federal funds rate. we can't really use quite the

same strategy of intervention we used prior to the crisis. so we have indicated that the main tool we will use is the interest rate we pay on overnight reserves. the overnight rrp facility that you referred to, i think of as a backup tool that will be used to help us control the federal funds rate, to improve our control over the federal funds rate. i think it's a very useful and effective tool. we have gleaned that from the initial testing that we have done. but as you mention, we do have concerns about allowing that facility to become too large or to play too prominent a role, and for precisely the reason that you gave. if stresses were to develop in the market, in effect it provides a safe haven that could

cause flight from lending to other participants in the money markets. so two tools that we can use and are discussing to control those risks, one would be to maintain a relatively large spread between the interest rate we pay on overnight reverse rrps and the interest rate on excess reserves, the larger that spread, the less used that facility will be. also, we can contemplate limits on the extent to which it can be used either aggregate limits or limits that would apply to individual participants and all of that is figuring into our discussions. >> thank you. >> senator reed? >> thank you very much, mr. chairman. thank you, madam chairwoman. you pointed out obviously that the mandate or one of the mandates of the fed is full employment. we have seen some progress, but

there has been variations regionally. my state still suffers from a significant unemployment crisis. also underlying the overall statistic is persistently high long term unemployment number. can you comment about what the fed is doing to try to address these two specific issues, and further comment upon whether as i feel, congress can complement your efforts by reinstating long term unemployment benefits for these people? >> well, as you note, nationally long term unemployment is at almost unprecedented levels historically and the average duration of unemployment spells is extremely, extremely long. and also of course, there are variations from state to state in the level of unemployment with some states seeing much

lower unemployment than the national average and the reverse. so our monetary policy really can't affect things at the level of individual states and we have no specific tools to target long term unemployment, but my expectation is that as the national unemployment rate comes down and if the pace of job creation stays where it is or even rises, i expect to see improvements on all fronts and in fact, long term unemployment has declined, and the evidence that i've seen, although perhaps not utterly definitive, suggests that the long term, the decline in long term unemployment does on balance reflect those who have experienced long spells

getting jobs and moving into employment and not simply becoming so discouraged that they move out of the labor force. so that is a healthy development and you know, while long term unemployment remains at exceptionally high levels and is a grave concern, i do think we are seeing improvements as the job market is strengthening and i think in every state, we should expect to see, as confidence in the recovery grows and strengthens, we should definitely expect to see improvements. >> you point out that the federal reserve's monetary policies have limitations but fiscal policies of the congress can be much more proactive in terms of one unemployment benefits so that these people have some support as they look for and don't get discouraged in their quest for jobs, and second, infrastructure and a host of programs, and i would assume you would see these as

complementary to your goal and necessary to your goal. >> well, senator, i think that these are really matters for congress to debate and decide with respect to long term unemployment benefits. obviously we have a situation where long term unemployment is far more common in the population and imposing serious, serious tolls. >> yeah. you don't have to respond but my sense is that for the last several years, you've been the only game in town in terms of trying to deal with this issue, because we haven't taken some of the actions that we could that would have been beneficial and see us in a much better situation today. >> well, fiscal policy has been, i think, cbo would confirm, a significant drag on the recovery and fortunately, that's diminishing and in fact, i think that's one of the positives for

the economic outlook for economic growth going forward. >> well, i hope you're right. just quickly, changing the subject, and probably making a point because my time is rapidly diminishing, the federal reserve in 2011 had a program independent foreclosure review process which they were trying to help people who had been misserved by the foreclosure process services. that was scrapped shortly afterwards and essentially went to a direct payment about $3.9 billion. i am told that that program still has cash on hand, that you haven't been able to reach the people, people who have been receiving checks haven't cashed them or don't intend to. this residual money, can you reprogram to state agencies or local initiatives that are much more effective in getting the money out? would you consider that? >> no decision at all has been

made at this point on what to do with residual funds, and so there may be a number of options we have yet to debate that. >> again, there are states, you know, and regions that need this help and if you could get the money to the people who can get it out, that would be i think positive. thank you, madam chairwoman. >> senator vitter. >> thank you, mr. chairman. thank you, madam chair, for being here for your work. this week on the senate floor, the senate is expected to adopt and pass my amendment to mandate that at least one member of the federal reserve board have direct community bank or community bank supervisory experience. what is your reaction to that mandate? >> senator, i would welcome the appointment of a community banker to our board. i think a community banker can

add a great deal to the work that we do and i have worked with community bankers like governor duke or community bank supervisors like then governor rask, and seen how much that experience can contribute to our work. so i am very positive on the idea of having a community banker appointed to the board. that said, i don't support requiring it via legislation. there are seven governorships, the board has many different needs. i think if we were to sit down and make a list of all of the kinds of expertise that are needed and are useful, there would be more than seven items on that list, and i would, you

know, prefer to see appointments made in light of the priorities, including for a community banker, rather than for the indefinite future locking in and earmarking particular seats for particular purposes. i feel that's a road that could go further in a direction that would worry me if we are earmarking, we could end up earmarking each seat for a particular kind of expertise and i think greater flexibility needs to change over time. but that's not in any way to diminish my support for seeing a community banker appointed to the board. >> well, we look forward to this community bank experience being more forcefully put on the board through this legislation so we'll agree on that and look forward to it. madam chair, we have talked a

lot over your various visits about too big to fail. it's a concern of mine and other members of the committee on both sides of the aisle. what i have personally heard is your agreeing with that general concern, but i have not really seen that translate into concrete policy moves to curb and change the continuation of too big to fail. that's my opinion. so in that context, you were last before us on february 27th. what if any specific policy changes, initiatives, movement, has the fed or other regulators taken to curb and help end too big to fail? >> so we have finalized our basel 3 capital requirements that significantly increase the

quality and quantity of capital in the banking system. even before we did that through our stress tests, we have worked to ensure that especially the largest and most systemic institutions have the ability to not only survive a very adverse stress to the system, but also to lend and support the needs of the economy through such a stress. the amount of capital in the banking system has basically doubled since 2009. we have put in place, we have put out for comment, a liquidity coverage ratio rule that we hope to finalize this year. we are in the process of working through a regulation that will implement so-called sifi

surcharges or surcharges for the largest, most systemic firms. we have finalized an enhanced and higher leverage standard for the eight largest firms in the united states, and we are working very hard to make sure that these firms are resolvable in the event they should encounter a stress that overwhelms those substantial defenses so the fdic under its orderly it has established an architecture for doing so and the united states is working with other global regulators to think through how that authority could be exercised to deal with cross border issues. we are discussing in the united

states and globally, a requirement for the largest and most systemic organizations to hold sufficient, unsecured long-term debt at the holding company level to enable a resolution that would be smooth in the event that such a firm had to be resolved. we are working with those firms also on living wills to enhance their ability to be resolved under the bankruptcy code. >> thank you, mr. chairman. >> senator schumer. >> thank you, mr. chairman. thank you, madam chair. you've done a very good job. you make brooklyn proud. i'm so glad to have these hearings. i've been sitting at humphrey hawkins hearings since 1981 in the house and senate. they are very elucidating. my first question deals with probably your most difficult

issue as fed chair, the anal-old balancing test between fighting inflation and going to full employment. it's a hard tight rope to walk, particularly as conditions change. we are now in a period of change. obviously, unemployment declined, thankfully. obviously, the economy is beginning to pick up. as a result there's a lot of pressure coming from many for you to not only accelerate the end of qe-2 quantitative easing and to raise rates. i would urge caution very strongly. to me the greatest problem this country still faces is lack of good-paying jobs, decline of middle class incomes. that's with us very, very strongly. worldwide labor markets still keep a lid on inflation. your stated target of 2% ten years ago, if people heard the stated target was 2%, your

predecessors, their jaws would drop, but we're not even at that. i would just ask you to be very cautious before you taper the qe-3 program too quickly and entertain the prospect of raising rates. could you comment? >> yes. so i certainly agree and tried to emphasize while we are making progress in the labor market, we haven't achieved our goal. it's also the case that inflation is running under our 2% objective. so both of those facts plus the fact that there have been substantial head winds holding the recovery back, and those head winds, while we are effectively overcoming them and

making progress, until they are completely gone, it calls for an accommodative monetary policy to offset that. i would say even if you consider our forward guidance we put in place in march, the committee indicated that even after we think the time has come to raise rates, that we think it will be some considerable time before we move them back to historically normal levels. that reflects, well different people have different views, but to my mind it, in part, reflects the fact head winds holding back the recovery do continue. productivity growth has been slow. of course, we need to be cautious to make sure the economy continues to recover. we have tried with respect to our asset purchases to set out a clear objective that we had to see a significant improvement in

the outlook for the labor market. to put in place a process by which reductions in the pace of our purchases would be measured, deliberate and allow us time to assess how the economy is recovering and we followed, i think, a very deliberate course. so i also emphasize this is not a preset course. if we were to judge the conditions had changed significantly, it's not locked in stone. >> thank you. i'm glad and somewhat relieved to hear. i know there are pressures. i would like to tease each side of that question. we are seeing improvement in job growth and seeing declines in medium income and middle class incomes and lower incomes. what it means is the number of jobs created that really pay well isn't growing quickly enough. poor paying jobs are growing more quickly.

how can the fed, if in any way deal with that. on the other side one of the things you worry about are bubbles. qe-3 pushed a lot of money into corporate bonds, the stock market. i don't think there are bubbles there yet. but i hope you are considering ways to reduce the possibility of bubbles without wholesale increases in rates. can you comment on both sides of that? >> well, with respect to wages, most measures of compensation have been running roughly in line with inflation so that real gains in compensation adjusted for prices or in real terms have been nonexistent. so while rising compensation or wage growth is one sign that the labor market is healing, we are not even at the point where

wages are rising at a pace that they could give rise to inflation. in fact, real wages have been rising less rapidly than productivity growth and what we've seen is a shift in the distribution of national income away from labor and toward capital. so there is some room there for faster growth in wages and for real wage gains before we need to worry that's creating overall inflationary pressure for the economy. that's something we are watching closely. with respect to bubbles, i've stated my strong preferences to use macroprudential and supervision policies to address areas where we see concerns. as i mentioned, we are doing that in the face of, for example, leveraged lending. but i would never take off the table totally the idea that monetary policy might be needed

to address financial stability concerns. to me, i don't see financial stability concerns at the level at this point where they need to be a key determinant of monetary policy. it's not my preference as a first line of defense by any means, but i would never want to take off the table that in some circumstances, particularly if macro-prudential tools failed monetary policy might be called on to play a role, but we're not there. >> thank you. >> senator johans. >> thank you, mr. chairman. madam chair thank you for being here today. this is the first time you've been before the committee. one as nominee, now twice as role in chair.

when you came to the committee last fall i was concerned about the lack of progress to deal with the $4 trillion balance sheet. i worry that the risk of quantitative easing outweighs the benefits. since that time, i want to say to you, i think you've moved in the right direction. in fact, you've moved at a pace that maybe i did not anticipate. you're down to $35 billion per month. but the reality is there is still a $4 trillion balance sheet out there, which is concerning. in your testimony you speak of your concerns about false dawns. there's been some fits and starts with the fed in terms of tapering. so my question gets to this

issue. you're anticipating that by october this program will cease, come to an end. what could happen in that period of time that would cause you to recalibrate and decide that october is not the appropriate date, maybe the program should go on for a period of time. tell me what metrics you are looking at to make these judgments as you go along. >> well, the committee indicated that the path of purchases is not on a preset course. and all along at each of our meetings where we had to decide whether or not to cut the pace of purchases or to stop that or even to increase purchases, we've asked ourselves two questions. is the labor market continuing to improve, and do we remain

confidence that going forward it will continue to do so? and do we see evidence that inflation is moving and will continue to move back to our 2% objective over time? and at every one of our meetings since last december when we started to taper the pace of purchases, we've asked those questions and the answer has been yes, we think inflation stabilized, and we'll gradually move up, and yes, we think the labor market will continue to improve and we have cut and we use the term measured pace or $10 billion a meeting. now our forecast is that for the next -- that we will continue to see those conditions. i think the evidence we are seeing is consistent with that. if we continue to see progress in the labor market, as i

expect, and inflation stabilizing or moving up to toward 2%, we would continue on the course we are in. as i mentioned, purchases would cease after october, but if there would be some very significant change in the outlook we see between now and october, so that we lost confidence that the labor market will improve, for some reason, or that inflation would move back up to 2%, then we would have to rethink that plan. that is the plan. >> excuse me. let me ask you a question. i'm running out of time here, about the labor market. because i think this is a very, very concerning issue for the economy and for the country. the proportion of americans in the labor force is now less than 63%.

we haven't seen those numbers since jimmy carter was president many, many years. i don't know if that's you or me, but it's annoying. we haven't seen those kinds of numbers since jimmy carter was president. the fed has said that you'll look at the labor market. you just reiterated that in your testimony. originally it seemed like the benchmark you were trying to achieve was 6.5%. it's now 6.1%, but to me that doesn't tell the story. the fact that our unemployment rate is at 6.1% doesn't reflect the reality people are taking part-time work, whether that's obamacare or another reason, we could debate for a long time.

tell me what you're looking for when you constantly refer to the labor market. are you looking for fuller participation, more full-time employment? what are you trying to achieve? i ask you to be brief because i am out of time. >> briefly, labor force participation certainly moved down. part of that, i believe, is an aging population and demographic. but when we see diminished labor force participation among prime age men and women that suggests something that is not just demographic, and so my personal view is that a portion of the decline in labor force participation we've seen is a kind of hidden slack or unemployment. it may be if that's correct that as the labor market strengthens that labor force participation will remain flat, instead of the

demographic trend continuing to pull it down. that as people who have been discouraged come back into the labor force and start looking at getting jobs, we will see labor force participation rate flatten out and the unemployment rate may not come down as quickly as it has been. but we'll need to look at that. that's a hypothesis. what we said about 6.5%, as long as inflation was not a concern, we would not think about raising the federal funds rate, we would not raise it until unemployment declined below 6.5%. 6.1% is not our target either.

participants in the fomc are asked what they think a so-called number employment or normal longer run unemployment rate is. in the monetary policy report, we've distributed in june, they thought this was 5.2% to 5.5%. of course we don't know and we are looking at all the things you mentioned in judging the labor force, judging the labor market, not just unemployment rate but a broad range of indicators, including voluntary part-time employment, as you mentioned. and a broader metrics concerning the labor market. >> thank you, madame chair. >> senator menendez. >> thank you. you were quoted saying while the economy is improving, the head winds are still there even when the head winds have diminished to the point where the economy

is finally back on track and it's where we want it to be, it's still going to require an unusually accommodative monetary policy. that was your statement. that seems pretty consistent with the concern of prominent economists outside of the fed. that current economic conditions and fiscal policy are producing an environment that requires lower than normal interest rates to generate economic growth and create jobs. can you explain to me what you mean about the need for, quote, unusually accommodative monetary policy? and do you agree with the views being discussed by many that larry somers and others about lower than normal interest rates and the dangers of tightening too soon? >> so, i do agree with the view that there are substantial head winds facing the economy. one example would be that we see in surveys of households that

their expectations about their future finances and growth in their real incomes are exceptionally depressed. i think that's a factor that is depressing spending. we see in the housing market where we had some progress but it now looks like it's stalled. a lack of credit availability for anyone who has anything other than a pristine credit rating, i think, remains a factor. and that's in many complicated ways, a legacy of what we have lived through. i think there are -- and fiscal policy has been a factor, in my view, holding back the recovery. and that's what monetary policy has had to counteract. that's in part why we have needed such an accommodative monetary policy for so long. the economy is making progress.

i do believe it's making progress, and eventually if we continue, a day will come when i think it will be appropriate to begin to raise our target for the federal funds rate, but to the extent that even when the economy gets back on track, it doesn't mean these head winds will have completely disappeared. in addition to that productivity growth is rather low. at least that may not be a permanent state of affairs, but it's certainly something that we have seen in the aftermath. we've seen it during most of the recovery. that's a factor that i think is suppressing business investment and will work for some time to hold interest rates down. these concerns and these factors are related to what economists are discussing, including secular stagnation. the committee, when it thinks about what is normal in the

longer run, the committee is recently slightly reduced on their estimates of what will be normal in the longer run. the median view on that is now something around 3.75%, but we don't really know. it's the same factors that are making the committee feel that will be appropriate to raise rates only gradually. there's some of the same factors that figure in the secular. >> let me ask beyond what the fed is doing. are there fiscal policy steps congress can take to improve the situation and reduce head winds against growth? for example, we have interest rates at near historic lows and construction employment is still below the pre-crisis levels. for example, wouldn't it be time to invest in repairing our nation's transportation and other infrastructure as a way to

help against such head winds? >> as i said, fiscal policy for a number of years has been a drag on growth. we can translate that into a factor that has necessitated lower than normal interest rates to get the economy moving back on track. of course, it's a judgment for congress what the appropriate priorities are, but i would certainly say that fiscal policy has been unusually tight for a period like we've lived through. >> i understand you don't want to dictate what congress' priorities are, but if congress were to say investing in significantly robust, transportation infrastructure and other similar projects, would that be something that would help against the head winds? >> certainly, it would be a counter to those head winds, yes. >> thank you, mr. chairman. thank you for holding this

particular hearing. chairman, thank you for being here. i apologize, i haven't been here for all of the questioning. the ranking member and myself are running back and forth to the energy committee talking about fire suppression. you get a lot of credit and blame. i'm not blaming you for the fires out west, all right? we can take that question off the table. i know you do take a lot of blame. i just want to thank you for taking time. you said in your opening remarks that the recovery is not complete from the great recession. we've had a lot of lively debates in this committee over soundness and safety, we had a hearing last week on high frequency trading. some are claiming markets are perhaps rigged. if you talked to individuals in 2008 and told them we are going to go five years through a great recession and you'll see the stock market go from 6500 to

17,000, not too many people would have believed that. the question is, books are being written about this, individuals are going as far as to claim the markets are rigged. i want to get your feelings. do you believe the stock markets are rigged? >> well, i think there are a number of concerns that have been outlined about high frequency trading, and i believe it was in june mary jo white, the chair of the s.e.c. gave a very important and very detailed discussion of high frequency trading, outlining where she saw problems and what potential solutions might be to those problems. >> the quantitative easing, do you believe the unintended consequences of qe-1, 2 and 3 with all the bond buying, that it's forcing people into the

stock markets creating this bubble? >> i think an environment of low interest rates in general, which have been promoted by our, both our keeping the federal funds rate at zero and additional by our purchases, low rates do have an incentive to push individuals to look for yield, to reach for yield. that is both a good thing and a bad thing. on the one hand, we need healthy risk taking in order to spur a recovery. and low interest rates, i think, have had a positive effect on helping the recovery, but of course we have to be careful about looking for situations where low rates may be incenting behavior that can be dangerous to financial stability.

i particularly outlined in my remarks an area like leverage lending where we are seeing a marked deterioration in underwriting standards. it looks like it may be part of a reach for yielding. we are trying to deal with that through supervisory, through supervisory means. the kind of broad-based increase in leverage in the economy and maturity transformation and credit growth that one tends to see in this situation where there are intense financial stability risks, i don't think we see those things. at this point, they are more isolated and not broad based in general, at least in my asse assessme assessment. thank you, i want to go back to senator johanns' question about

quantitative easing. do you see when the federal reserve stops the bond buying program? >> as i indicated in my opening remarks, if things continue on the current course, and as the committee expects, the purchases would cease after october meeting. >> if they cease, my question today would be, would you ever see the restarting of quantitative easing? once it ends, do you believe this is now the new normal the federal government buys these bonds or would you commit to saying the quantitative easing has come and gone and we've seen the last of it? >> it really depends on what the economy does. the economic outlook is very uncertain. i hope we're on a solid course of recovery and that it will continue and not encounter some serious setback. i wouldn't take it off the table forever as a tool the federal

reserve might need to some day in some circumstances use again, but my hope is we're on a path of recovery and monetary policy will, over time, normalize, that our purchases will end, eventually our balance sheet will begin to shrink back toward more normal size. and when the time is right, that short-term interest rates will begin to move above their current very, very low levels, too. >> dr. yellen, thank you. >> senator brown. >> thank you, mr. chairman. madame chair, thank you for being here. these hearings so often focus when the fed will change its policies so financial markets will rally and wall street lenders can make money. too often we forget about the human side of these issues. as federal reserve chair, you worked to put a face on economic numbers. we're appreciative of that. last february you talked about the toll on unemployed workers

being simply terrible and mental and physical health on their workers, on their marriages and on their children. it seems too many people around here still view unemployed workers as lazy, shipless people who do not really want to work, so we simply don't extend programs like unemployment insurance. talk for a minute or two about the psychological effects unemployment has on workers, why the psychology is so important and why it should matter to all of us, even a senator who goes to work in a suit every day and speaks with an upper class accent. >> well, i think when workers lose jobs they depend on for their livelihoods experience a special psychological trauma, and especially when the unemployment is a long duration has it has been for many individuals who find themselves

unemployed now. first of all, there is a very significant loss in lifetime income. many studies have documented for workers who experience job loss when unemployment is as high as it has been and they find it difficult to get another job. of course, there's the fear that goes with that of how will i support my family? how will i take care of my children? i gave a speech in chicago in february and talked to a number of unemployed workers and heard personal stories about individuals who were supporting children and concerned that because in some cases they could only find part-time low-paying jobs that they couldn't continue to support their children

adequately. there are a number of studies. when i use those words, that it takes such a toll on families and children and psychologically that's based on a number of studies that have documented that, that there are health costs to workers who lose their jobs. that in terms of the progress of their children, there are losses to their children when a parent loses a job for a significant amount of time. in terms of the odds of divorce and break-up of family, that is obviously present, too. for people the jobs are often their identities. when an individual can't find a job for a prolonged period of time, who am i and what is my role and how do i contribute to my community and to my family become real psychological toll.

i think anyone who ever talked to people experiencing significant unemployment realizes what the psychological toll is and the ways it affects their well being and that of their community. >> thank you for realizing that's an important part of your job, to forcefully speak out about the human side, the human cost of economic policies. too many meshes look at washington's response to the financial crisis and feel nothing's changed. after all the four largest banks are 25% larger than they were in 2007. federal reserve vice chair said last week what about breaking up the large financial institutions? there is no simply actively breaking up the largest banks would be a very complex task with uncertain pay-off. it's troubling to me that the largest banks are so complex. one of our nation's top

regulators can't understand these institutions, particularly since he worked at one of them. dr. fisher liked your views expressed in 2009 that break up the banks is more of a slogan. governor torillo's views, he praised a plan i worked on with the senator from delaware. my question is, do you agree with vice chair fisher or do you believe with governor torillo? >> i think one of the things vice chair fisher said that i certainly agree with with is that systemic risk in the financial system is not purely a question of too big to fail institutions. we shouldn't lull ourselves into thinking if we deal with ways to

resolve or diminish the role of those institutions that systemic risk is not still a real phenomenon that we have to worry about. during the great depression when we had a financial crisis, it was mainly a large number of small banks that were affected, and then we saw runs on the banking system that had the potential to, and did cause a collapse of credit in the economy. so i think he pointed out and i agree that we have to worry about more than the too big to fail firms, and we could have systemic risk if a large number of smaller institutions are hit for some reason. it is certainly, i agree with my colleague governor tirullo, we are committed with trying to

deal with too big to fail. we have put into place numerous steps and have more in the works th that, reduce their odds of failure if they do fail, it's important to be able to resolve these firms. on one hand there will be much lower odds that a systemic firm would fail. should that occur, we'll have better tools to deal with it. throughout living will prospect and other aspects of our supervision, we are trying to give these firms a feedback object ways in which they can

alter their structure in order to resolve their ability. >> the living will processes for these 11 large firms, the issue of complex that we can't address the issues of complexity. thank you, madame chair. >> thank you, madame chair for joining us yet again. i think you know from our previous conversations, i've long been of the view that the risks associated with this unprecedented policy experiment outweigh the meager benefits. i disclose that upfront. i want to understand better a different aspect of this. that is a movement towards normalization which arguably is under way now, necessarily depends on the projections that the fed makes. you discussed some of those projections, inflation, unemployment, gdp projections.

what concerns me is that these things are hard to project. the fed doesn't have a great track record projecting these things. i don't think the fed anticipated, for instance, the extent to which a decline in the work force participation would drive unemployment rates lower. i have a little graph i know you can't see from where you are, i would ask it be included in the record. simply depicts the fed's projection of gdp one year out and then compares that to where gdp actually was. it's been pretty terribly wrong for ten years. it seems as though there is a systemic bias with a more optimistic outlook than what has actually come to pass. so my question is, to what extent, how introspective is the fed being about their own limitations in making projections which ultimately are driving a movement in the direction of normalization? maybe more precisely, do fed

members incorporate into your own decision-making process the fact that these projections haven't been so good? that's not to say you're unique getting these projections wrong. i understand how difficult they are. but don't they argue for a more conservative approach and a quicker move to normalization since you know that very frequently these projections have been wrong? >> i certainly agree that projecting future economic activity is very difficult business. rgdp projections have been for a number of years, too optimistic. i would say our projections about the labor market and unemployment, as well as inflation have come closer to the mark. so gdp stands out as someplace where our projections have been

systemically off. of course, we have to gear monetary policy to what actually occurs in the economy, and not just what we expect will happen in the future to the economy. our forward guidance, for example, is very explicit in saying that the time of normalization of policy, the time at which we would begin to raise the federal funds rate above this zero to 0.25% raise which will depend on actual progress we can see that is not a forecast, and our expectations about future progress in achieving both of those goals. so we are looking at what happens in the economy, and when we're wrong, we take that into account. as we see ourselves coming closer to our goals or failing

to achieve our goals, that's real live data that we respond to and adjust our policy accordingly. i think that must be a feature of monetary policy is that it adjusts to actually unfolding events and not just what we expected. >> thank you. one other question. you know there is often a lot of discussion about the fed following some kind of well defined rule. obviously, many central banks do that. the fed itself has done it in the past. what is your reaction to the idea that the fed would be able to design its own rule, but it would be an objective data-driven rule, the fed would be required to disclose the rule, and the fed would be allowed to deviate from the rule, but it would have to come to congress and explain when and why it was doing so? what are your thoughts on an arrangement of that nature? >> well, no central bank in the world follows mechanical

mathematical rule. i think it would be a terrible mistake to ask the federal reserve to specify a mathematical rule. >> we've got central banks that peg their currency. that is a well-defined rule. >> well a currency board. >> or having a gold standard is a well defined rule. >> okay. if that's what you mean by a rule of gold standard, currency board, yes, that has happened. but given the goals that congress has assigned to us with respect to inflation and employment, i'm not aware of any, for example, inflation targeting country of which there are many that has a mathematical rule. nevertheless, it makes perfect sense to behave in a relatively systemic way. in looking, when you have objectives, asking the question, how far are you from achieving

those objectives, and how fast do you expect progress to be made in determining whether or not exactly how much accommodate is needed. a number of different factors come into play at different times if we were following a specific mathematical rule, i really think performance in this recovery would have been dreadful. most of the rules we would have used, first of all, we couldn't have followed in the depths of the down turn. they would have called for negative interest rates. if we had tightened monetary policy as some of those rules would have called forgiven the head winds we face, the recovery would not be as far advanced as it is. there are special factors and structural changes that need to be taken into account that would make me very disinclined to follow a mathematical rule. but i think it is important a

central bank behave in a systemic and predictable way and to explain what it's doing and how it sees itself as likely to respond to future economic developments as they unfold. and that is precisely what we are trying to do with our forward guidance. >> thank you. >> thank you, chairman yellen for the work you've done. i think in previous sessions we had, i think you agreed the fsoc and fed have authority to develop industry guidelines and metrics rather than forcing insurers or asset manager firms into a regulatory mold. that is still your position, i assume? >> i believe with respect to designation that each unique company that's under consideration needs to be

carefully evaluated in detail. >> thank you. in the past, some of us on this committee raised concerns that the fsoc seems to have a lack of transparency and the sifi session nation pr designation process. can you tell me why the process should not be transparent, if you think it should not be transparent? >> well, i think that it should be transparent what it is that the fsoc is considering and looking for and trying to evaluate when it looks, evaluates any particular firm. and i believe the fsoc has made it clear that they are trying to identify entities that are responsible for systemic risk to the financial system, and the

metrics that it looks to to evaluate that. but this great deal of confidential firm-specific information that comes into play in evaluating a particular firm that i don't think should be in the public domain, unless it is actually designated in which case it has been brought into public domain. >> you do believe the metric should be transparent? >> the criteria used to establish, to designate should be clear. >> do you believe they are now? >> i believe they are reasonably clear. >> okay. >> because there's some -- there's some, and i'm one of them that believe the process has not been transparent at all. what i would ask of you because i believe you think it should be. i agree with you. the information that is specific to a company doesn't need to be

transparent, but i believe the metrics they are using so we know what they are looking for so quite frankly, everybody knows what they are looking for when it comes to designation is important. >> right. i believe they've indicated on what kinds of things they are taking into account. >> about six months ago when you were before this committee, we talked about clarifying the end user exemption from the margin included in the dodd-frank given minimal risk they posed in the overall market. you and former chairman bernanke all indicated comfort with exempting end users from the costly margin requirements. is this still true today? do you still feel this way? >> yes. >> good. >> you indicated the rule would be out by the end of the year, the end user rule just wonder if

you're still on schedule? >> i think that is correct, that we are. >> a few more head nods. thank you. that is very good. i want to talk a little bit about the assessment. when you are looking about the assessment of incoming information, when it comes to the economy and fed funds, labor market is one of them, gdp is one of them. i would assume housing is one of them. what are some other indicators you're looking at? >> we are trying to assess the likely path of the labor market and employment and inflation which are the two goals congress told us to focus on. in trying to make those assessments. we have to look at a huge range of data. housing, consumer spending,

what's happening in the global economy what do we expect will happen to our exports and imports? all of that figures into what will growth be in the economy, then in turn matters like productivity growth will affect how that translates into progress in the labor market. with respect to inflation, of course, we are looking at many different metrics. >> of all those things you listed, which is of the most concern? >> of all those different metrics? >> yes. talking about the inputs you consider within the economy, what is of the most concern? >> at this moment what is of the most concern? >> yes. >> essentially the committee having looked at all these different factors holds the view

we will enjoy moderate growth the next year and next couple of years and the labor market will improve, and so while we are concerned that housing is a sector where we expect to see better recovery, we are not. we are not many knowledgeable enough to know whether it will hold back recovery. appreciate your work and your interest. you gave a speech recently on the importance of macr macro-prudential cools. the fed is taking the stance regulatory tools such as

increase requirements, margining, central clearing, requirements for derivatives will improve. we are now taking the approach they are going to happen and we are going to deal with them. is that an accurate statement? >> i think the steps you indicated to strengthen the financial system do two things. they diminish the odds that bubbles will develop. for example, these rules diminish the chance that leverage will build up as an economy strengthens. we've taken steps and will take further steps to diminish the likely buildup in leverage in the economy. >> you would agree zero interest rate policy is